Axis Bank, which kicked off the third quarter results season by reporting a 63 per cent rise in net profit, is bracing for change. Chairman and CEO P J Nayak, who has been with the bank for nine years, is going to step down in August. He spoke to Anirudh Laskar about the prospects of the bank and his plans.
Do you expect this growth to continue during the fourth quarter?
We had a fairly strong business momentum since the first and the second quarter and we managed to continue with it during the third quarter. Our fees continued to grow. We also continued to maintain the non-performing assets (NPAs) at the minimum possible level to boost profits.
We have managed to keep our costs low during the third quarter. It was a difficult quarter for the banks due to shortage of liquidity and rising cost of funds. We would be able to manage our cost of funds during the fourth quarter as interest rates have started falling now.
The bank expected the net interest margin (NIM) to be in the range of 3.25-3.5 per cent during the third quarter, but it fell to 3.12 per cent. Do you expect NIM to improve with cost of funds and interest rates coming down?
NIM is a factor of interest rates. NIM has come down because interest rates went overboard during the last few months. Now that the rates have started dropping, we expect our NIM to restore equilibrium. We expect our NIM to be in the range of 3.25-3.5 per cent during the fourth quarter.
What will be the impact of lower cost of funds on your lending and deposit rates?
Our deposit rates have already started coming down. Both lending and deposit rates are functions of costs of funds. It will be difficult to predict the quantum of cut in lending rates, but it will certainly have a downward bias now.
The current account and savings account (CASA) base has shrunk to 38 per cent in Q3 as against 45 per cent a year ago. Is it a matter of concern?
This was a difficult quarter for banks. As interest rates had started rising, retail customers preferred to park money in term deposits. That is why our deposit base has grown by 54 per cent year-on-year. Our CASA is still much better than a lot of other banks.
Our balance sheet is growing at a much faster rate now and as interest rates are now coming down, we expect liquidity to improve, which will help in growing our CASA base further. We expect our CASA to remain in the range of 40 per cent during the fourth quarter.
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The bank’s retail advances portfolio has decreased to Rs 15,616 crore in the third quarter as against Rs 16,777 crore during the second quarter. What is the reason behind the dip and what is your strategy on retail lending?
We have been conservative in retail advances during the third quarter. But we still managed to grow our retail portfolio significantly. The numbers during the second quarter were better as we disbursed loans to the tune of Rs 1,800 crore towards housing schemes, including DDA.
If we exclude this, our retail lending has maintained its earlier levels even during the third quarter. We expect to maintain our growth rates at 30 per cent during the fourth quarter. Our corporate lending portfolio is estimated to grow at 35-40 per cent for the coming quarter and the year.
What is your strategy on the statutory liquidity ratio (SLR) investment?
Our SLR investments are mostly concentrated in the held-to-maturity (HTM) category. However, as interest rates fell, we thought it better to shift some of our investments to the available-for-sale category, which helped the bank book profits in trading income during the third quarter. In fact, two-thirds of our trading income was generated from our SLR investments.
What about your plans for an asset management company, which has been in the pipeline for long?
The CEO has been appointed and is expected to join this month-end. We are waiting for the equity market to improve and expect to start operations by the end of the quarter.
Are you leaving the bank in August and what about your successor?
My tenure comes to an end in August. The management will take a decision on the next appointment. I do not have any plans for my next venture. I will prefer to go on a holiday. As a bank, Axis Bank has been highly competitive since its establishment. The bank should be able to maintain its growth momentum in the coming days.